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OLL Holdings and Patrick Corp would generate net earnings of $509 million in the current financial year, according to forecasts made in a bidder's statement filed to the ASX last night.
Under the most bullish scenario charted by Toll's directors, a merged entity would be value-adding for shareholders in its first year if the effective date of acquisition was negotiated as July 1, 2005.
If this and other assumptions were met, Toll believes the merged entity would generate revenue of $7.15 billion in the 12 months to June 2006 compared with $4.04 billion if the predator continued to operate as a standalone business.
The figures assume that Toll would be able to secure rail operator Pacific National as a fully owned subsidiary.
That is probably the most shaky assumption, as market analysts believe competition hurdles could block the bid.
Toll's directors also predict that a union of the two companies would boost returns to shareholders in terms of earnings per share by
3.3 per cent.
However, under another scenario contained in the bidder's statement, Toll's directors indicate that the acquisition may not be value accretive in the current year.
If Patrick, including its 50 per cent interest in Pacific National, was brought on to the Toll balance sheet on January 1 next year, earnings per share would fall to 72.6 compared to 74.8 if Toll continued only with its existing operations.
In the statement, Toll warns that its estimates are subject to a raft of risk factors, including oil price volatility, industrial action and regulatory hurdles.
"Fuel price volatility can have a significant impact on Toll's cost structure," Toll's directors stated.
"If oil and fuel prices continue to increase, the potential impact on consumer spending and any consequent slowdown in the Australian and global economy could impact customer activity and ultimately merged group performance levels."
Although Toll managing director Paul Little has identified cost savings as a value driver of the deal, the board does not foresee any material disputes with trade unions.
The majority of the combined entity's employees and sub-contractors are members of unions.
Toll's directors confirmed that the merged group would book a one-off restructuring cost of $36 million to secure long-term cost savings.
They also disclosed that the group would incur arrangement fees of $10 million in relation to bridging facility to fund the transaction.
A merged group would deliver annual cost savings of $65 million within three years of the acquisition being completed, the statement said.
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